Market Post: Munis Lower After Positive Economic News

Driven by better-than-expected economic news and an unemployment rate that fell to a four-year low, the tax-exempt market continued to post losses Friday morning.

"It's weaker again," a New York trader said. "People are hitting some bids, but there are bids out there."

He added that the continued weaker tone stemmed from employment figures released Friday morning. February non-farm payrolls surged 236,000, well above what economists had expected. The unemployment rate fell 0.2 percentage points to 7.7%.

Economists were quick to react. "This was a surprisingly strong employment report that shows private payroll growth over the last three months running some 30,000 ahead of its average gain over the last year," wrote economists at RDQ Economics. "Employment gains were broad based with construction employment kicking in solid increases over the last three months and with transportation being the only private industry to show a decline. Wage and salary income growth in February looks to be very solid combining the 0.5% increase in hours worked with the 0.2% increase in average hourly earnings."

But, not all news was good. "The drop in the unemployment rate to 7.7% was in part due to a further decline in labor force participation, which raises the risk that we could hit the Fed's 6.5% threshold in 2014 rather than 2015 and underscores the uncertainty relating to demographics," the economists added.

Overall, municipal bond market scales ended weaker Thursday for the fourth straight session.

Yields on the Municipal Market Data triple-A GO scale ended as much as four basis points higher. The 10-year yield jumped four basis points to 1.94% while the 30-year yield increased two basis points to 3.02%. The two-year closed at 0.31% for the 13th straight session.

Yields on the Municipal Market Advisors 5% coupon triple-A benchmark scale closed as much as four basis points higher. The 10-year yield jumped three basis points to 1.93% while the 30-year yield increased two basis points to 3.08%. The two-year was steady at 0.33% for the eighth session.

Treasury yields jumped. The benchmark 10-year yield spiked up six basis points to 2.05% while the 30-year yield climbed five basis points to 3.25%. The two-year yield rose one basis point to 0.27%.

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